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Why investing is hard and Gold’s role in your portfolio. An interview with Tadas Viskanta.

We recently had the opportunity to interview Tadas Viskanta, an experienced investor and creator of the popular blog Abnormal Returns. Tadas has a new book, name after his blog. In his book Tadas provides a solid foundation in the basic principles for taking a slow, steady, and savvy approach to your financial future. We spoke with Tadas about his book and his view on Gold and while Abnormal Returns doesn’t give you hot new tips for hitting the jackpot right now you will get a fresh perspective on how markets work. Click here to buy the book.

Why did you write this book and what is the main takeaway

I wrote this book because there were a series of themes and ideas which I kept running across in my daily blogging. Fortunately they coalesced around a number of themes, categories and trends which lent themselves well to a book format. The main takeaway is that “investing is hard.” It is difficult for individual investors and difficult for seasoned professional investors as well. There are two main reasons for this. The first is that the global financial markets (and economy) are an increasingly complicated place filled with all manner of crosscurrents. Trying to understand what is going on is a challenge even for veteran market watchers. If you thought forecasting markets was difficult before, now it is even more so. Second, as challenging as markets are, trying to understand and manage our own behaviors can be just as difficult. I would argue that coming to terms with our own biases may in fact be a more valuable skill. This is due to the fact that we cannot control what the financial markets will do today, tomorrow or next year. What we can do is hopefully try and manage our financial lives so that we avoid making those big mistakes from which we will have a difficult time overcoming.

In your book you have a chapter dedicated to alternative investments and you mention that Gold is a “decent portfolio diversifier”. Tell us why

The main defense of gold in a portfolio setting is that it has a low correlation with other financial assets like stocks and bonds. In a world driven by increasingly high correlations this is an attractive feature. In the chapter on alternative investments I note that there is no “perfect investment.” I would include gold in this as well. Unfortunately gold has a number of adherents who would claim that gold makes sense in every sort of market environment, which on the face of it can’t be true. in contrast financial types would argue that gold has no inherent value and its price is therefore subject almost entirely to market sentiment. While this is true, gold has been an enduring feature of human civilization for millennia. So while gold may not be a “productive asset” in the eyes of Warren Buffett, it is not likely to disappear off investor radar screens any time soon.

What is your 2 cents for someone who is just starting to get into the investing space?

My two cents is that before anyone thinks about investing in any serious way they need to make sure that the rest of their financial lives are in order first. As I say in the book before you can run, i.e. invest actively, you first need to be able to jog, i.e. understand basic investing concepts, and first, walk, i.e. eliminate debt, budget, etc. The fact is that “savings is the best investment,” by that I mean generating a $100 in savings is far easier than trying to generate $100 from the markets. The former is a far more certain outcome than the latter. These good habits will have an important impact on your financial life not only today but in the future. That being said after a certain point all you can do is take the plunge. Gaining experience in the markets even in a small way, in both good times and bad, especially bad, will provide you with the knowledge to deal with uncertain markets when the financial stakes are much higher down the road.

* The content contained in this blog post does not represent the views of APMEX Inc. or employees of APMEX Inc. This commentary in no way constitutes an endorsement or investment advice.